NY legalizes daily fantasy sports

Some companies can seek temporary licenses to restart operation

1of2CHICAGO, IL - OCTOBER 16: The fantasy sports website DraftKings is shown on October 16, 2015 in Chicago, Illinois. DraftKings and its rival FanDuel have been under scrutiny after accusations surfaced of employees participating in the contests with insider information. An employee recently finished second in a contest on FanDuel, winning $350,000. Nevada recently banned the sites. (Photo illustration by Scott Olson/Getty Images) ORG XMIT: 586020605Scott Olson2of2CHICAGO, IL - OCTOBER 16: The fantasy sports website FanDuel is shown on October 16, 2015 in Chicago, Illinois. FanDuel and its rival DraftKings have been under scrutiny after accusations surfaced of employees participating in the contests with insider information. An employee recently finished second in a contest on FanDuel, winning $350,000. Nevada recently banned the sites. (Photo illustration by Scott Olson/Getty Images) ORG XMIT: 586020605Scott Olson

The legislation, approved in the final throes of the legislative session in June, notably clears the way for DraftKings and FanDuel, two of the industry's titans, to begin taking bets from New York customers again after Attorney General Eric Schneiderman sought to bar them from doing so, claiming that their games constituted illegal gambling. Even with the new law, Schneiderman can still go after the companies for alleged false advertising, which he has pledged to do.

At issue has been whether daily fantasy sports are games of skill or games of chance. The new law more clearly defines them as games of skill in state statute.

And while some contended that legalizing the games required a constitutional amendment, the legislation signed by Cuomo does not alter the state Constitution.

Daily fantasy sports will be taxed and regulated. Operators will be subject to a 15 percent tax on gross revenue and another 0.5 percent tax that is not to exceed $50,000 annually. That is estimated to bring in roughly $4 million per year for state education funding, according to the governor's office.

The state Gaming Commission will serve as the industry's regulator. Any company operating in New York prior to Nov. 10 of last year may begin operating again with a temporary permit from the commission. Formal regulations will be offered up soon, a commission spokesman said, noting that the commission first needed the law to be signed and regulations will be subject to public comment.

A number of consumer protections also are part of the new law, including prohibitions for minors and a requirement that operators identify all highly experienced players by affixing a symbol to their usernames or by other "easily visible means."

"Daily fantasy sports have proven to be popular in New York, but until now have operated with no supervision and no protections for players," Cuomo said in a statement. "This legislation strikes the right balance that allows this activity to continue with oversight from state regulators, new consumer protections, and more funding for education."

The reason daily fantasy sports needed a law to put them on solid statutory footing is because Schneiderman first challenged them last November, seeking to stop DraftKings and FanDuel from operating here.

That led to similar actions in other states and state-level campaigns to create new laws to clearly delineate the legality of the games.

Schneiderman and the two companies came to mirror agreements in March that put on hold the companies' appeals of an injunction the attorney general had sought to stop them from taking bets. Under the agreements, the companies would stop their appeals until the Legislature acted. Had it not acted, they would have been able to restart their appeals during the state appellate court's September term.

Yahoo subsequently said it would also stop taking bets from New York players as well. That company was not part of any legal actions.

"As I've said from the start of my office's investigation into daily fantasy sports, my job is to enforce the law and protect New Yorkers from illegal or unscrupulous conduct," Schneiderman said in a statement Wednesday. "Today, the governor has signed a bill that amends the law in order to legalize daily fantasy sports contests, with consumer protections for New York players. I will enforce and defend the new law. Our false advertising and consumer fraud claims for past misconduct by Draft Kings and Fan Duel will continue to move forward."

DraftKings CEO Jason Robins said in a statement the company is excited to bring its contests back to New York players.

"On behalf of everyone at DraftKings, we look forward to welcoming New Yorkers back and are excited that fans in some of the greatest sports towns in the world will once again be playing the fantasy sports contests they love," he said.

In his statement, FanDuel CEO Nigel Eccles said the state is marking "a capstone achievement in a remarkable year for fantasy sports."

"Last fall, amidst national controversy, some pundits put fantasy sports on death watch," Eccles said, noting that seven other states have legalized the games since January. "But when the calendar turned to 2016 and fantasy sports fans had the opportunity to be heard and legislators had the opportunity to act, the dynamic quickly shifted, and one by one states began to recognize this is a game loved by millions – millions who should be able to play and deserve the basic protections afforded to consumers in all major industries."